<PAGE>
UNITED STATES
Securities and Exchange Commission
Washington, D.C. 20549-1004
----------------------------
Form 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------- ------------
ENVIROTEST SYSTEMS CORP.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-21454 06-0914220
-------- ------- ----------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
ENVIROTEST TECHNOLOGIES, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-57384-01, 33-75406-01 36-2680300
-------- ------------------------- ----------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
246 Sobrante Way
Sunnyvale, California 94086
---------------------------
(Address of principal executive offices, including zip code, of registrants)
(408) 774-6300
--------------
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class of Common Stock Outstanding at January 31, 1997
--------------------- -------------------------------
Class A Common Stock, $0.01 par value 13,204,396 shares
Class B Common Stock, $0.01 par value 1,389,749 shares
Class C Common Stock, $0.01 par value 2,026,111 shares
1
<PAGE>
ENVIROTEST SYSTEMS CORP.
INDEX
-----
Page No.
--------
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets:
December 31, 1996 and September 30, 1996 3
Condensed Consolidated Statements of Operations:
three months ended December 31, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows:
three months ended December 31, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES
- ----------
Exhibit Index
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENVIROTEST SYSTEMS CORP.
Condensed Consolidated Balance sheets
(Amounts in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $143,417 $ 53,104
Short-term investments - 7,991
Settlement due from Commonwealth of
Pennsylvania 80,000
(current portion)
Contract receivables, net of allowance for
doubtful accounts of $468 and $449,
respectively 9,088 10,969
Prepaid and other current assets 6,159 6,432
-------- --------
Total current assets 158,664 158,496
Restricted cash 19,111 21,108
Property, plant and equipment, net 192,342 192,400
Assets held under capital lease, net 45,108 46,108
Assets held for sale, net 30,276 32,246
Intangible assets, net 14,245 14,927
Deferred debt acquisition costs, net 13,894 13,159
Deferred charges, net 1,137 1,189
Other assets 1,675 1,151
-------- --------
Total assets $476,452 $480,784
</TABLE>
3
<PAGE>
ENVIROTEST SYSTEMS CORP.
Condensed Consolidated Balance sheets (Continued)
(Amounts in thousands)
<TABLE>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,525 $ 3,825
Accrued interest 9,467 1,689
Current portion of long-term debt 4,032 4,740
Current portion of capital lease and
long-term debt obligation 4,800 3,880
Other current liabilities 25,222 27,754
-------- --------
Total current liabilities 46,046 41,888
Senior long-term debt, net 199,238 199,192
Senior subordinated debt 125,000 125,000
Capital lease and long-term debt obligation,
net of current portion 56,965 58,155
Other long-term debt, net of current portion 36,997 38,129
Other long-term liabilities 5,377 5,266
-------- --------
Total liabilities 469,623 467,630
Stockholders' equity:
Common stock 166 166
Additional paid-in capital 60,172 60,172
Cumulative currency adjustment (247) (96)
Retained deficit (47,684) (41,510)
Other stockholders' equity (5,578) (5,578)
-------- --------
Total stockholders' equity 6,829 13,154
-------- --------
Total liabilities and stockholders'
equity $476,452 $480,784
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
4
<PAGE>
ENVIROTEST SYSTEMS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Three Months Ended
December 31,
1996 1995
-------- --------
(Unaudited)
Contract revenues $31,179 $28,184
Costs of services 24,604 21,892
-------- --------
Gross profit 6,575 6,292
Selling, general and administrative expenses 4,294 4,177
Amortization expense 672 1,011
Gain on Pennsylvania settlement - (15,307)
-------- --------
Income from operations 1,609 16,411
Other expense (income):
Interest expense 9,548 8,326
Other (80) 20
Interest income (1,685) (1,095)
-------- --------
Income (loss) before income taxes (6,174) 9,160
Income tax expense - 3,572
-------- --------
Net income (loss) $(6,174) $ 5,588
-------- --------
-------- --------
Earnings (loss) per common and common
equivalent share $ (0.37) $ 0.32
-------- --------
-------- --------
Weighted average common shares and
common equivalent shares 16,620 17,265
-------- --------
-------- --------
Earnings (loss) per common share - assuming
full dilution $ (0.37) $ 0.32
-------- --------
-------- --------
Weighted average common shares and common
equivalent shares 16,620 17,265
-------- --------
-------- --------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
ENVIROTEST SYSTEMS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Three Months Ended
December 31,
1996 1995
------- -------
(Unaudited)
Cash flows from operating activities $ 6,853 $ 31,807
-------- --------
Cash flows from investing activities:
Maturity of short-term investments 7,991 1,347
Purchases of property, plant, and equipment (3,638) (27,596)
-------- --------
Net cash provided by (used in) investing
activities 4,353 (26,249)
Cash flows from financing activities:
Proceeds from sale of Pennsylvania receivable 79,405 -
Proceeds from borrowings of long-term debt - 17,000
Decrease in restricted cash 1,997 14,837
Repayment of long-term debt (980) -
Repayment of obligations under capital lease (1,130) -
Capitalization of loan fees (190) (573)
Other - 121
-------- --------
Net cash provided by financing activities 79,102 31,385
Effect of exchange rate on cash 5 13
-------- --------
Net increase in cash and cash equivalents 90,313 36,956
Cash and cash equivalents, beginning of
period 53,104 17,079
-------- --------
Cash and cash equivalents, end of period $143,417 $54,035
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE>
ENVIROTEST SYSTEMS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.
The accompanying condensed consolidated financial statements should be read
in conjunction with the Company's audited consolidated financial statements and
related footnotes included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1996 filed with the Securities and Exchange Commission.
Operating results for the interim periods shown in this report are not
necessarily indicative of the results to be expected for any other interim
period or the full fiscal year.
2. Deferred Charges
The Company incurs significant expenses associated with bringing new
emissions testing programs into operation, including staff recruiting and
training, public information and similar pre-operating costs. These expenses are
deferred and amortized over a twelve month period beginning with the
commencement of the emissions program. At December 31, 1996, the Company had
incurred and deferred approximately $1.1 million, net of accumulated
amortization, of such expenses relating to the Indiana and Connecticut emissions
programs. The Company expects that its results of operations during any fiscal
period that includes the commencement of a program will be adversely impacted by
this accelerated. amortization.
3. Pennsylvania Settlement
On December 11, 1996, the Company sold its right to receive the two
remaining installment payments totaling $80 million (the "Receivable Assets") in
principal amount due under a settlement agreement with the Commonwealth of
Pennsylvania (the "Settlement Agreement") for approximately $79,405,000.
The transaction was effected through a sale of the Receivables Assets from
Envirotest Partners, a Pennsylvania general partnership owned by Envirotest and
ETI, to a newly formed wholly owned subsidiary of the Company, ES Funding Corp.
("Funding"). Funding, in turn, transferred the Receivables Assets to an
affiliate of a Pennsylvania bank. Funding and Partners provided certain
representations in connection with the transaction, including representations as
to enforceability of the Settlement Agreement against the Commonwealth, and
agreed to repurchase the Receivables Assets if Partners fails to comply with its
obligations under the Settlement
7
<PAGE>
Agreement.
The Settlement Agreement also requires the Company to use its best
efforts to dispose of the assets it acquired to perform vehicle emissions
testing services in Pennsylvania. If the net proceeds received by the Company
from the sale of the assets is less than $55 million, Pennsylvania is
obligated to pay the Company fifty percent of the difference up to $11
million no later than July 31, 1998. The amount of this contingent payment
was reduced from $15 million in an amendment to the Settlement Agreement that
permitted the Company to complete sale of the receivable assets. Should the
net proceeds from the sale of the real estate and other program related
assets exceed $55 million, the Company is obligated to pay the Commonwealth
75% of the amount by which the net proceeds exceed $55 million. Based upon
the experience with recent sales of these assets, and the sufficiency of
reserves, the Company has increased its estimates of the residual value of
the remaining real estate by 4 million and the Company is of the opinion
that upon final disposition of properties no loss will be recognized.
4. Income Taxes
The deferred tax asset has been fully reserved as of December 31, 1996.
The amount of the deferred tax asset considered realizable, however, could
change in the near term if estimates of future taxable income are revised.
5. Legal Proceedings
The State of Connecticut has made certain claims stating that the Company
owes the State $2.4 million plus accruing amounts for certain cost savings in
the start up of the enhanced testing program in Connecticut. The Company cannot
predict the outcome of this complaint. However, the Company believes that it
has valid defense against these claims.
As previously disclosed, the Company is a defendant in Grendell, et al.
V. Ohio EPA. et al, a taxpayers' class action suit originally filed on
October 3, 1996 in Geauga County Court of Common Pleas, State of Ohio. The
case has been remanded to the Common Pleas Court in Franklin County, Ohio.
Plaintiffs are political opponents to Ohio's motor vehicle emission
inspection program, known as "E Check," and seek to enjoin the program and
Envirotest's Ohio contracts as invalid and void based on three Ohio
constitutional provisions. No case management schedule has been issued by
the Court. The Company believes that it has valid defenses to the claims
contained in the complaint and intends to defend the matter vigorously.
On January 30, 1997, Ron Young, as relator, filed an original action for a
writ of quo warranto and ancillary relief in the Ohio Supreme Court. The action
names Betty D. Montgomery, Attorney General, as the respondent. The complaint
requests that the Court require respondent to establish by what authority the
Ohio General Assembly enacted Am. Sub. S.B. 18, the State's most recent version
of a motor vehicle inspection and maintenance ("I/M") program.
Apart from the question of standing, Envirotest believes that there are
significant legal issues as to whether his action is encompassed within the
scope and purpose of this extraordinary writ. Envirotest filed a motion to
intervene as an additional party respondent on February 4, 1997. The Attorney
General has twenty-one days from the date of service to respond. Envirotest
believes it appears to be a necessary and indispensable party to the
litigation, and that its motion should be sustained.
See Part II., Item 1 - Legal Proceedings for further discussion.
The Company is a party to various other legal proceedings and claims in
the ordinary course of business. The Company does not believe that the
outcome of any pending matters will have a material adverse affect on its
consolidated financial position or results of operations.
8
<PAGE>
ENVIROTEST SYSTEMS CORP.
Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company conducts its current operations directly and through its
principal wholly owned subsidiaries, Envirotest Technologies, Inc. ("ETI"),
Envirotest Wisconsin, Inc. and Systems Control, Inc., a Washington corporation.
The Company's British Columbia, Canada operations are conducted through a
British Columbia partnership, Ebco-Hamilton Partners ("EHP"), which is wholly
owned by the Company (through its subsidiaries).
Results of Operations
Contract revenues increased to $31.2 million in fiscal first quarter 1997
from $28.2 million in fiscal first quarter 1996, an increase of $3.0 million or
10.6%. This increase is primarily attributable to a $2.8 million increase in
revenue generated from the implementation of a new contract with the State of
Ohio, additional revenue of $2.0 million from the Washington State program
acquired on January 30, 1996, and a $1.0 million increase in the British
Columbia program resulting from a one time adjustment in the scheduling
requirements for testing. The increase in revenue was partially offset by a
decrease in revenue of $1.6 million in the Colorado program as more vehicles
were scheduled for testing in the corresponding first fiscal quarter 1996.
The Connecticut program also experienced a decrease of $l.2 million as
compared to the comparable quarter. The test volume in the comparable
quarter included tests that had been extended by the State of Connecticut
during the commencement of the new program in fiscal 1995. In addition,
revenue also decreased $0.5 million as a result of the expiration of the
California Quality Assurance contract which ceased September 30, 1996.
Gross profit increased to $6.6 million in fiscal first quarter 1997 from
$6.3 million in fiscal first quarter 1996, an increase of $0.3 million, or
4.8%. As a percentage of contract revenues, gross profit decreased to 21.1%
in fiscal first quarter 1997 from 22.3% in fiscal first quarter 1996, an
absolute decrease of 1.2%. This decrease was mainly attributable to the lower
revenues in the Connecticut program, and the lower gross margin in the new
Ohio program due to higher start-up costs then anticipated. This decrease was
partially offset by the contribution from the newly acquired Washington
program and the improvement in margins in the Colorado and British Columbia
programs.
Selling, general and administrative ("SG&A") expenses were $4.3 million in
fiscal first quarter 1997 as compared to $4.2 million in fiscal first quarter
1996. As a percentage of contract revenues, SG&A expenses decreased to 13.8% in
fiscal first quarter 1997 from 14.8% in fiscal first quarter 1996, an absolute
decrease of 1.0%.
Amortization expense decreased to $0.7 million in fiscal first quarter 1997
from $ 1.0 million in fiscal first quarter 1996, a decrease of $0.3 million.
The decrease is attributable to expiration of the California Quality Assurance
contract as of September 30, 1996.
First fiscal quarter 1996 included a one time gain on the Pennsylvania
settlement of $15.3 million.
9
<PAGE>
Income from operations decreased to $1.6 million in fiscal first quarter
1997 from $16.4 million in fiscal first quarter 1996, a decrease of $14.8
million. Income from operations as a percentage of contract revenues decreased
to 5.2% in fiscal first quarter 1997 from 58.2% in fiscal first quarter 1996 an
absolute decrease of 53.0%. This decrease was primarily attributable to the
gain of $15.3 million reflected on the Pennsylvania settlement in fiscal first
quarter of 1996.
Interest expense increased to $9.5 million in fiscal first quarter 1997
from $8.3 million in fiscal first quarter 1996, an increase of $1.2 million.
The increase in interest expense was primarily attributable to debt associated
with the start-up of new programs in Wisconsin, Washington, and Indiana.
Interest income increased to $1.7 million in fiscal first quarter 1997 from
$1.1 million in fiscal first quarter of 1996, an increase of $0.6 million. The
increase in interest income was primarily attributable to interest earned on the
amounts due under the Pennsylvania settlement.
There was no income tax benefit on the pretax loss in fiscal first quarter
1997 compared to an income tax expense of $3.6 million in fiscal first quarter
1996. The benefit was lower than the combined federal and state effective tax
rate of approximately 39% as a result of recording a valuation allowance to
fully reserve the deferred tax asset.
Net loss was $6.2 million in fiscal first quarter 1997 compared to a net
income of $5.6 million in fiscal first quarter 1996, a decrease of $11.8
million.
Liquidity, Capital Resources and Commitments
Cash and cash equivalents, short-term investments and restricted cash
increased to $162.5 million at December 31, 1996 from $82.2 million at September
30, 1996. The increase of $80.3 million was primarily a result of the proceeds
of $79.4 million received as a result of the Company selling its right to
receive the two remaining installment payments totaling $80 million from the
Commonwealth of Pennsylvania.
The Company's primary uses of cash are the funding of the Company's capital
expenditure requirements, payments on capital and operating leases, interest
payments and other working capital needs. The Company's capital and operating
leases currently require minimum lease payments of approximately $15.7 million
in fiscal year 1997, decreasing to approximately $14.3 million through 1999 and
decreasing thereafter as certain leases are scheduled to expire.
The Company's capital expenditures include maintenance capital expenditures
for existing facilities, and development and construction expenditures for new
emissions facilities. The Company's development and construction capital
expenditures are dependent on the number of contracts it is awarded, and are
only incurred after the contract has been signed. After signing a contract, the
Company may incur significant development and construction expenditures, which
the Company expects to finance with existing cash resources, internally
generated funds, additional borrowings and alternative financing sources,
including leasing alternatives. It generally takes one to two years after a
contract has been signed for a program to begin operations and generate
revenues, depending on the size of the program.
The Company's principal commitments at December 31, 1996 consist of capital
expenditure requirements for the completion of implementation of the Indiana
program estimated at
10
<PAGE>
$2.4 million. Also in fiscal 1997, the Company intends to spend
approximately $1.2 million on maintenance capital expenditures.
The Company believes that its existing cash resources, cash generated from
operations and alternative financing sources, including leasing alternatives,
will be sufficient to complete implementation of the Indiana program and to meet
its liquidity requirements for the foreseeable future.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 123 - Accounting for
Stock-Based Compensation will be effective for the Company's 1997 fiscal year.
This statement introduces a fair-value based method of accounting for
stock-based compensation. It encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments to employees based on the new fair-value accounting rules.
Companies that choose not to adopt the new fair-value accounting rules will be
required to disclose pro forma net income and earnings per share under the new
method. Management has not yet determined which method it will adopt.
Certain sections of this Form 10-Q, including "Management's Discussion
and Analysis of Financial Condition and Results of Operations," contain
forward looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, with respect to the Company's expectations
or belief concerning future events. The Company cautions that these
statements are further qualified by important factors that could cause actual
results to differ materially from those in the forward looking statements.
The forward looking statements include, without limitation, the amounts of
reserves recognized and ultimate outcome of pending litigation.
11
<PAGE>
ENVIROTEST SYSTEMS CORP.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As previously disclosed, the Company's new contract with the state of
Connecticut began January 1, 1995, with enhanced testing scheduled to begin on
April 3, 1995. Just prior to the startup of enhanced testing, the State decided
to continue the old testing procedure and phase in the enhanced testing.
Additionally, the Company was unable to build two facilities, one due to the
State's inability to provide the land the contract required and the other due to
the inability to obtain zoning. The State claimed that it was entitled to be
paid for the cost savings to the Company for not having performed the enhanced
test and not having built the facilities. The Company claimed additional costs
incurred when the State unilaterally changed the test. After unsuccessful
settlement negotiations, the Commissioner of Department of Motor Vehicles
rendered a decision on February 9, 1996 that the Company owed the State
$2.4 million plus other non-qualified amounts for 1995 and additional accruing
amounts until the enhanced test was performed and the facilities built. In
accordance with the contract and to protect its rights, the Company appealed the
Commissioner's decision to binding arbitration at the American Arbitration
association. On May 1, 1996, prior to the appointment of the arbitrators, the
State filed a complaint in the Superior Court at Hartford to enjoin the
arbitration from going forward claiming that the American Arbitration
Association had no power to administer hearings in this manner. The State has
taken no further action on this matter and no hearing date with regard to the
State's complaint has been scheduled.
As previously disclosed, the Company is a defendant in Grendell, et al.
V. Ohio EPA. et al, a taxpayers' class action suit originally filed on
October 3, 1996 in Geauga County Court of Common Pleas, State of Ohio. The
case has been remanded to the Common Pleas Court in Franklin County, Ohio.
Plaintiffs are political opponents to Ohio's motor vehicle emission
inspection program, known as "E Check," and seek to enjoin the program and
Envirotest's Ohio contracts as invalid and void based on three Ohio
constitutional provisions. No case management schedule has been issued by
the Court. The Company believes that it has valid defenses to the claims
contained in the complaint and intends to defend the matter vigorously.
On January 30, 1997, Ron Young, as relator, filed an original action for a
writ of quo warranto and ancillary relief in the Ohio Supreme Court. The action
names Betty D. Montgomery, Attorney General, as the respondent. The complaint
requests that the Court require respondent to establish by what authority the
Ohio General Assembly enacted Am. Sub. S.B. 18, the State's most recent version
of a motor vehicle inspection and maintenance ("I/M") program.
A relator needs authority to request a writ of quo warranto. Typically,
only the State Attorney General has the right to bring such an action. Mr.
Young, a member of the Ohio House of Representatives, asserts that the
Attorney General is disqualified from bringing an action for a writ. In
addition to asserting his standing to request a writ of quo warranto,
Representative Young's complaint seeks to invalidate Envirotest's contracts
awarded pursuant to Ohio's I/M statutes on state and federal constitutional
grounds.
Apart from the question of standing, Envirotest believes that there are
significant legal issues as to whether his action is encompassed within the
scope and purpose of this extraordinary writ. Envirotest filed a motion to
intervene as an additional party respondent on February 4, 1997. The Attorney
General has twenty-one days from the date of service to respond. Envirotest
believes
12
<PAGE>
it appears to be a necessary and indispensable party to the litigation,
and that its motion should be sustained.
The Company is a party to various other legal proceedings and claims in
the ordinary course of business. The Company does not believe that the
outcome of any pending matters will have a material adverse affect on its
consolidated financial position or results of operations.
13
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Statement of Computation of Earnings Per Share
(27) Financial Data Schedule
a. Reports on Form 8-K
The Registrants filed the following reports on Form 8-K during the last
quarter:
1. The Company filed a Report on Form 8-K on December 12, 1996 that
included information under Item 5 ("Other Events"). The Report was filed for
the purpose of disclosing that the Company had sold its right to receive the two
remaining installment payments totaling $80 million in principal amount due to
the Company under its Settlement Agreement with the Commonwealth of Pennsylvania
for approximately $79,405,000. The Report did not include any financial
statements.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused their report to be signed on their behalf by the
undersigned thereunto duly authorized.
ENVIROTEST SYSTEMS CORP.
(Registrant)
ENVIROTEST TECHNOLOGIES, INC.
(Registrant)
Date: February 14, 1997 /s/F. Robert Miller
F. Robert Miller
President and Chief Executive Officer
Date: February 14, 1997 /s/Raj Modi
Raj Modi
Vice President, Chief Financial Officer
Treasurer and Assistant Secretary
(Principal Financial Officer)
15
<PAGE>
ENVIROTEST SYSTEMS CORP.
EXHIBIT INDEX
Exhibit
Number Page No.
(11) Statement of Computation Earnings Per Share
(27) Financial Data Schedule
16
<PAGE>
Exhibit 11
Statement of Computation of Earnings Per Share
Three Months Ended
December 31,
1996 1995
-------- --------
INCOME (LOSS)
Net Income (loss) $ 6,174 $ 5,588
-------- --------
-------- --------
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE
Weighted average number of shares outstanding 16,620 16,399
Net effect of dilutive stock options based on
the treasury method using the average
market price of common stock (a) 866
-------- --------
Common stock and common stock equivalents 17,710 17,265
-------- --------
-------- --------
Earnings (loss) per common and common
equivalent share $ (0.35) $ 0.32
-------- --------
-------- --------
EARNINGS (LOSS) PER COMMON SHARE -
ASSUMING FULL DILUTION
Weighted average number of shares outstanding 16,620 16,399
Net effect of dilutive stock options based on
the treasury method using the end of
period market price of common, if
higher than average (a) 1,090 866
-------- --------
Common stock and common stock equivalents 17,710 17,265
-------- --------
-------- --------
Earnings (loss) per common and common
equivalent share $ (0.35) $ 0.32
-------- --------
-------- --------
Notes:
(a) Common stock equivalents represent stock options and warrants.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the Envirotest
Systems Corp. Form 10-Q for the quarter ended December 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 143,417
<SECURITIES> 0
<RECEIVABLES> 9,088
<ALLOWANCES> 468
<INVENTORY> 0
<CURRENT-ASSETS> 158,664
<PP&E> 192,342
<DEPRECIATION> 46,572
<TOTAL-ASSETS> 476,452
<CURRENT-LIABILITIES> 46,046
<BONDS> 365,267
0
0
<COMMON> 166
<OTHER-SE> 6,663
<TOTAL-LIABILITY-AND-EQUITY> 476,452
<SALES> 31,179
<TOTAL-REVENUES> 31,179
<CGS> 24,604
<TOTAL-COSTS> 24,604
<OTHER-EXPENSES> 4,886
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,548
<INCOME-PRETAX> (6,174)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,174)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,174)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
